Summation will make you think ... by Auren Hoffman ... since 1997 ...

Dec 17, 2014

Every year I re-edit my list of favorite books of all time. This year's edition has a few subtractions from years past and a two additions I read in 2014 (one by Peter Thiel and one by Ben Horowitz). Enjoy:

Ultimate Auren Hoffman Reading List:

Against the GodsThe Remarkable Story of Riskby Peter L. Bernstein

The Cash Nexus: Money and Power in the Modern World, 1700-2000 by Niall Ferguson

Feb 14, 2014

In this economy, most people are lucky to find one job. But a select few have multiple offers of interesting opportunities. If you are one of those people, picking the right opportunity can be difficult and stressful. Here are some easy heuristics to help you make the best decision.

First, let’s think about what you want to get out of a job. Very few people are trying to maximize their short-term compensation. If you are trying to do that, no need to read further. Just take that job at a top hedge fund (or, better yet, get drafted by the NBA). But read on if you are trying to maximize growth, learning, and long-term success.

Long-term success requires massive growth. Most smart people out of college grow an average of 10% per year. Which means they are roughly twice as effective 7 years after graduating college. That makes sense as most 29 year olds make double what they did their first job out of college. But growing at 10% per year is way too slow if you want to accomplish great things. You should be aiming to grow at a rate of at least 25% per year for your first few years out of school (like all things, your rate of growth (the second derivative) will slow over time).

To grow quickly, you need a job with the following criteria:

You’re surrounded by people who are smarter than you

You have an opportunity to fail

The company has a history of giving massive responsibility to people that look like you

Find a company where at least 30% of the people are smarter than you

You will grow the most through the people who surround you, so make sure those people are really impressive. Because people tend to hire those they know, many of these people will likely be your colleagues for the next 30 years. So pick your colleagues wisely. One simple heuristic to determine how smart the people are at the company are is how selective they are in hiring. You want to pick a company that has a really hard (and often long) recruiting process where you need to meet a lot of people, complete a project, and have some grueling interviews. While not perfect, at least you know that everyone else the company hired went through the same process.

Opportunity to fail

You grow the most when you have a 33-66% chance of failure. To improve, you want to be in a position where success is not guaranteed. When success is difficult to attain, people push themselves much harder. Too often, people (especially recent grads) are put into jobs that they will definitely succeed at. I will not improve my tennis game playing against by 22-month old daughter. If you are playing chess, you’ll learn the most playing people within 100 points of your score (in the chess Elo ranking, a 100 point difference means a 2-to-1 advantage). And while definite success initially feels good, it doesn’t help you grow. You should find an organization that will give you projects where there is a high chance of failure.

Opportunities for massive responsibility

Assuming you are an ambitious person that wants to have continued growth, you want the opportunity to be promoted and to be given continuously greater responsibility. The companies that are most likely to promote you quickly have a history of doing so and are experiencing high growth. Find people that joined the company with a similar profile that you have and see if some of these people were given outsized responsibility in the company. If your abilities warrant it, you can also be given the chance. But if you have a hard time finding people, there will be little chance the company will look to promote you quickly.

These three criteria are heavily weighted towards the selection of start-ups (fast growth companies with under 200 people). And it is not an accident that the very best grads over the last few years are choosing start-ups over traditional choices like Goldman Sachs, Microsoft, and McKinsey. In fact, so many great people are joining start-ups that traditional employers have been forced to massively increase salaries to attract students with the promise of short-term compensation.

But not all start-ups are created equal. Look for the ones that have a really hard interview process, where they give you an opportunity to fail, and have examples of people just a few years older than you that have been given outsized responsibility.

Jan 13, 2014

Limited by the indefinite and imprecise results of traditional marketing, CMOs of the past could not realize meaningful metrics to measure success. But today’s technology has ripened, enabling sophisticated and precise decision-making. CMOs have adapted and thrived accordingly, so much so that they will soon lead not just marketing, but companies in their entirety.

The CMO as Billy Beane

Michael Lewis’ Moneyball chronicles how baseball teams evolved to embrace new and more sophisticated metrics to achieve success. Traditionally, teams looked to antiquated statistics (e.g., batting average, stolen bases) to determine a player’s worth. Around the year 2000, the Oakland A’s realized that advanced stats like slugging and on-base percentages were far better indicators of value. Building a roster with these new metrics, the A’s became one of the best teams in baseball despite one of the smallest payrolls in the sport.

Marketing is experiencing a similar revolution now. In the past, no substantial feedback loop existed to tie customer choices to marketing activity. Marketers had to do things by touch and feel, often betting their careers on the black-boxed “genius” of creative agencies or the fuzzy results of focus groups. Ultimately, CMOs simply had to hope that correlation was causation; that an uptick in sales was actually attributable to them and not some confounding factor.

That’s all changed. With the plethora of analytics tools, big data platforms, and precise tracking methods available today, marketers can see inside the black box. Like in baseball, sophisticated metrics have emerged to enable better decision-making.

Enter the Moneyballer CMO.

Today’s Moneyballer CMO plans her marketing initiatives the way Billy Beane built the Oakland A’s.

She uses streams of analytical data and relies less on subjective focus groups or simplistic measures. Her analytics are acute and precise; the impact of every marketing and branding initiative is quantified. She leverages granular data on customer actions to expand beyond the traditional CMO role, influencing product strategy, customer service, and optimized sales pitches.

The Moneyballer CMO still uses smart agencies and consultants, but insources the core marketing strategy using the increased visibility her technology allows. She also insources her company’s data, employing it across multiple platforms and applications. Silos are the enemy of the Moneyballer CMO, because connected data means more holistic and measurable results.

Moneyballer CMOs and Technology

The rise of the Moneyballer CMO is both a symptom and a cause of marketing technology growth. As data becomes more integrated and accessible, smart marketers demand better analytics, so companies respond by spawning countless marketing applications.

Analogous to Moore’s law, the number of marketing applications doubles every two years. Just think of all the platforms that have emerged in the past 12 years: search marketing, social media, cloud applications, site analytics, mobile devices. With so many new technologies to manage, CMOs have had to become smarter, shrewder, and data savvy to stay competitive. It’s little wonder that they have become some of the smartest people in the room.

Residing on the cutting edge of technology, the Moneyballer CMO is often the most forward-looking executive at an organization. She’s always scanning the horizon for the next platform that will complement her technology stack, improve leads, or lift conversions up another fraction of a percent. That foresight is key to keeping an organization modern and relevant across all departments.

The CMO’s Touch

Business is just starting to experience the positive influence of the Moneyballer CMO. Marketing technology companies are in their infancy and we should anticipate an explosion of new tools that will yield massive returns for marketers and customers alike.

The CMO is moneyballing everything that touches the end customer. That’s why the CEOs of the future are the CMOs of today.

Dec 19, 2013

The next few decades will witness a massive decline in ownership. Renting, not owning, will become the primary way people in the first-world consume.

The last century saw an enormous increase in ownership. This change was spurred by a few factors:

Wealth: society grew much richer over the past 100 years.

Convenience: having your own property available to you all the time, e.g., your car, has been much more convenient than the alternative.

Technology: the advent of big-box stores and the Internet made it easier and cheaper to own than before.

And thus, we have way too much stuff. In fact, everyone, even the some of the poorest Americans, have tons of things we don’t need and no longer want.

But this will change. We will soon become a nation of renters. We might still own the very essential things (like our smart phone) or things that are used very often (like underwear), but there will be little need to own things we use only occasionally (a fancy pair of shoes, most jewelry, or that really nice pizza-making set).

The things we might want to rent fall into three categories:

1. Things we need occasionally, like specific cookware. We'd like to use that lovely baking set 3-4 times per year, but we don't want it cluttering up your cabinet everyday.

2. Things we need for a finite period of time, like baby’s clothes. We might want to hang on to one or two cherished items, but most of our baby’s clothes go to waste after the child grows.

3. Things we need only once, like a hotel room. When I go to Kansas City for two nights, I am not going to buy a house.

Paradoxically, some of the same forces that have made it so easy to buy will soon make it much easier to rent.

Technology: Much of the newest technology in the last decade has focused on renting rather than owning. It is no longer smart to buy music – you can rent every song in the world from Spotify. Instead of buying movies, you can watch them on demand on Amazon Prime or Netflix. ZipCar gives you the flexibility to drive whatever car you fancy at the moment – sometimes you’ll want a sports car and other times you’ll want an SUV. Attending a ritzy party? You can rent that designer ball gown from RentTheRunway.com instead of spending a fortune to own it.

Unpredictability: Our world is now perceived as more unpredictable than it was a generation ago (especially for Americans). A hard-earned asset like a house was once a sign of stability, but in the past ten years owning a home became a ruinous liability for many. Without certainty about the future, ownership is high risk.

Convenience: While owning is often more convenient than renting, technology and business model changes have made renting really easy (and, in some cases, even easier than owning). For example, with car sharing services you don’t have to worry about obtaining insurance or finding a parking spot.

Population Density: More people are choosing to live in dense urban areas. This means we all have less room for stuff. Shrinking living spaces makes it increasingly impractical to own things like winter sports gear, larges tools like table saws, and other occasionally used items. Additionally, renting is much easier when there is a high concentration of people because warehouses and depots can reach high utilization.

Environmental Awareness: Creating stuff we own but no longer need is a big contributor to environmental harm. As some of the population grows more concerned about the health of the environment, many will consider renting a less wasteful way to consume. While recycling helps mitigate the damage caused by the things you own, renting leaves an even smaller footprint.

Over the next 20 years, we’ll see a huge movement toward a renter’s world. The second order effects of this shift will be both positive and negative. Positively, people will be able to have more choice, convenience, and opportunity to experiment. Negatively, the decline in ownership will undoubtedly hurt economic growth, with potentially catastrophic implications for countries like China that make much of the world’s stuff.

Like with many economic problems, change is dictated by our ability to solve market inefficiencies. The things we own that we don’t use regularly are wastefully underutilized, and it is only a matter of time until those inefficiencies were cured. That time, the time of renting, is nearly upon us.

Sep 26, 2013

You can’t learn to be a big winner without losing first. We would all love to achieve success on the first go, but the reality is failure often lays the requisite groundwork for success. As I discussed in my earlier post “Fail to Succeed,” failing hardens our resolve, gives us experience, and lights the way to achieving our goal.

In his almost manic Oscar acceptance speech for winning Best Picture for “Argo,” Ben Affleck illustrated this mainstay mantra in Silicon Valley. After a string of bad films, the reinvented and rebooted Affleck said, voice trembling with emotion: “It doesn't matter how you get knocked down in life; that's going to happen. All that matters is you've got to get up."

This maxim is best exemplified in politics. There’s no clearer referendum on success and failure than an election by popular vote. Throughout history, political losers have rose to become successful leaders. In fact, every elected U.S. President since Kennedy has lost a major election on their way to the top:

Lyndon Johnson - Lost his first battle for the U.S. Senate in 1941

Richard Nixon - Lost his first race for the Presidency against Kennedy in 1960

Jimmy Carter - Ran for governor of Georgia in 1966 and lost

Ronald Reagan - Failed to win the Republican Presidential nomination in 1976 when he took on a sitting President Ford

George H. W. Bush - Lost his race for Congress in 1964 and then lost his Senate seat in 1970

George W. Bush - Failed in his bid for congress in 1978

Barak Obama - Took on a popular sitting congressman, Bobby Rush, in 2000 and got trounced in the Democratic primary

Bill Clinton lost his first reelection bid for Arkansas governor. That loss was devastating for him. But he quickly learned from his failure and adopted a new message, which put him back in the governor’s mansion two years later. He famously said that he “learned from defeat that you can't lead without listening.” Recognizing
the value of failure allowed him to take a big risk in 1992 and run against a very
popular president. His main Democrat rivals (Mario Cuomo and Dick Gephardt)
didn’t jump into the race because they were too afraid of losing. Without
Clinton’s pivotal failure earlier in his career, the 1990s could have been a
very different decade.

Beyond gaining experience, running a failed campaign can build up essential
infrastructure
and recognition for future elections. John McCain lost his bid for the Republican Presidential nomination in 2000, but he gained the national recognition to win the nomination in 2008. Mitt Romney followed the same blueprint, losing to McCain that year but winning the nomination in 2012. Romney invested a lot of time in building a strong ground game during his first run, cultivating support in key states and setting up offices around the country. When he ran the second time, he was able to re-enlist those same resources. Building upon an already strong foundation, he handily won the nomination.

While I can’t predict who our next president will be, I can predict that he or she will have lost a significant election in the past. Losing is at the heart of winning big.

To really differentiate yourself in this winner-take-all
world, you should be focusing on improving your strengths, not your weaknesses.

Most people who set out to improve themselves focus on their
faults. For example, here’s Bridget
Jones’ list:

“Resolution number
one: Obviously will lose twenty pounds.

Number two: Always put
last night's panties in the laundry basket.

Equally important,
will find sensible boyfriend to go out with and not continue to form romantic
attachments to any of the following: alcoholics, workaholics, commitment phobics,
peeping toms, megalomaniacs, emotional wits or perverts.”

While I don’t deny that it’s good habit
to place your undergarments in the laundry bin, it is not the best way to
achieve greatness. People who focus on their faults can eventually improve them
to a point where they are no longer obstacles, but doing so will not propel
them to success. A better strategy is to
focus on one or two of the things at
which you excel and hone those skills or talents to the point of excellence.
Working on your faults might help you make a living, but honing your talents
may help you change the world.

We are all judged on a variety of traits. We might have four
bad traits, another four mediocre ones, and one or two for which we are
admired. We all recognize the four at bad
ones; we make New Year’s resolutions to improve them.

The impulse to focus on your weaknesses is a vestigial
remain of an outmoded era in our evolution.
Indulging that impulse won’t lead to success because we are in a modern winner-take-all
world. In this world, outsized
returns go to greatness, so it’s better to focus on one or two things at which you
truly excel and strive to become great at them.

Going from good to
great is really hard. But so is going from poor to mediocre. And if you have a
predisposition or talent for a trait it’s likely to be something you love to do
and you’ll enjoy the process of refining it.

If one of your really good traits is that you’re good-looking,
you should focus on being great-looking, because in your category the spoils
will go to a few people. So spend the money and time on those expensive haircuts,
the rigorous fitness routine, and the flattering clothes.

Suppose you are really good at developing computer
algorithms and really bad at showing up on time. It might take an X amount of effort to become
really great at computer algorithms and let’s say it takes X/4 effort to become
average at showing up on time. Both are
improvements that increase your value, but being great at computer algorithms will
pay exponential dividends.

Or let’s say you’re ugly but hilarious enough that strangers
pay you to make them laugh. Working on
your comedic skills will go a lot further than losing some weight. Being the funniest person in town is going to
make you stand out.

Have you ever noticed that all the most successful people
have massive, glaring weaknesses? Think
of Bill Clinton’s well-known faults. But
he has one or two traits in which he is world class. That’s all you need to be a superstar. Same thing goes for Martin Luther King Jr.,
Gandhi, Steve Jobs, and any other person that has changed the world. What does Tiger Woods do great? He hits golf balls long and accurately . . .
and that’s what he will be remembered for. People -- all people -- have very obvious flaws. Instead of spending massive amounts of energy
on those flaws, spend it on making yourself great.

Of course, it’s not as
easy as I make it sound, or else everyone would achieve greatness. To be outstanding requires passion,
dedication, and extraordinary commitment. The great pianist Arthur Rubinstein
practiced as much as 16 hours a day at some point in his career. He said that if he missed practice for one
day, then he knew it. But if he missed practice for three days, his public knew
it.

For most of us it might be too late to be a concert pianist,
a champion golf player, or a prima ballerina. However, we do have talents and
natural abilities that, if honed, can propel us much further than remedying our
faults.

Jun 29, 2013

Google may be the biggest search company on earth. But if you stop
to think about it, Google actually owns a miniscule market share.

You might argue (after googling it) that according to comScore, Google has 66.9% U.S. market share -- that’s 91 million people a day. You might also point out
that the very word in the Oxford English Dictionary to describe an Internet
search is the transitive verb, “to google, ” added in 2006.

These indicators of monopoly may technically be true. However, the
market in discussion includes only traditional search engines where Google,
like a colossus, dominates the others. Yet these traditional search engines are
just a fraction of what people use to conduct searches.

Just stop and think about all the searches you conduct daily. You
look for a book on Amazon. You search for flights on Priceline. You connect
with a friend on Facebook. You worry about your symptoms on WebMD. You pick out
a nice bouquet at 1800Flowers. You recruit a potential employee on LinkedIn,
and follow a trend on Twitter. You dig up that video of a bike-riding dog on
HuffPost while look up a writer on the New York Times. You search for a song to
buy on iTunes, and plan a movie night on Fandango.

There is an exponential growth of vertical search engines aiming
to carve out a niche by catering to specific needs. The incredible fact that
millions of people walk around with a smartphone has increased the demand for
customized, localized information.

In addition to searching on the traditional web, you probably
spend a lot of time searching through your own information. You look for a
phrase within a legal document. You search for a contact to call on your phone.
You search tomorrow’s agenda on your calendar. You rummage for a past email.

There are also searches in your life that are taking place automatically.
Your car’s GPS is doing searches to help get you to your destination. Your
phone is searching for the best connection it can get to a radio tower. Your
social networks are seeking out the best contact suggestions for you to
reconnect with.

And, of course, we’re constantly searching that classic search
engine, the one used by the likes of Plato and Aristotle -- our own brain --
for memories and information. Like the vertical solutions above, our brain’s
search algorithm is evolving and iterating with the times. A 2011 study by Harvard University concluded
that we are “becoming symbiotic with our computer tools, growing into
interconnected systems that remember less by knowing information than by
knowing where the information can be found.

Google’s search engine is just a tiny fraction of the searches the
average American does every week. This
is why Google’s biggest initiatives are Apps (Calendar, Email, Contacts, documents),
Android, and Google+. They want a much
bigger piece of a lucrative and yet untapped search market. And guess what? So
do Apple and Facebook, and every other self-respecting technology company.

Google may seem untouchable in general search, but it is far away
from perfectly fulfilling your every need. Innovative search services that
choose their battles wisely will enjoy healthy freedom to grow.

Apr 17, 2013

We’re in midst of the last bubble. This bubble will likely go on for longer than previous bubbles and crash much harder. This current bubble is fueled by being the last chance for baby boomers to strike it rich.

Feb 05, 2013

Over the next 100 years, the importance
of creativity will trump systems thinking due to the rapidly escalating power
of computers.

No, I’m not talking about an
apocalyptic “Rise of the Machines,” but rather about the future ascent of
people who excel in creativity, intuition, and the marshaling of original
solutions, things that computers won’t be able to do for a long time. Tomorrow’s
rewards will be won by creative people who contribute new ideas. Call it the Right Brain Revolution.

For the past few centuries, society has
richly rewarded strong systems thinkers, logical, analytical, objective people
such as computer programmers who build software, engineers who build bridges,
lawyers who write contracts, and MBAs who crunch numbers. But as computers take
over more of the pure systems thinking, people with only this skill set will
find their importance decline. There are about 4 to 5 million engineers and
computer scientists employed today in the US and few will be automated out of
existence. But in the next 50 years, those that excel in creativity-- big
picture thinkers, artists, inventors, designers -- will rise to the top. It
could be as big a paradigm shift in labor market history as when tools made
physical strength irrelevant, or assembly lines replaced the cottage industry.
The illiterates of the future will not be those who cannot read and write or
code, but those who cannot connect the dots and imagine a constellation.

From 1975 to 1994 only 0.5% of
psychological studies concerned creativity, but now it’s a flourishing field
complemented by an entire industry of self-help books on how to become more
creative. A recent IBM poll of 1,500
CEOs from 60 countries and 33 industries identified creativity as the No. 1
“leadership competency” of the future (more than rigor, management discipline,
integrity and even vision).

In the United States, the key
predictive score to spot a good systems thinker-- our future leaders-- has been
the SAT and IQ tests. Our universities
have, for the most part, outsourced their admissions decisions to these tests.
And that was probably a good thing. In the last few hundred years, systems
thinking trumped all other talents. We
needed to build bridges and understand complex matters. While creativity,
emotional intelligence, and other talents have been important, they were
relegated to second place in predicting a person’s success. But while high IQ is important, it isn’t very
correlated to creativity.

That is going to change.

Over the next 30 years, we are going to
see a big societal shift that will give outsized rewards to creativity. Systems thinking, while still important, will
move to second-fiddle in the talent hierarchy.

And here’s why...

Computers are becoming better and better
systems thinkers every day. Besides
beating us at chess and at Jeopardy, computers will soon be able to provide
important functions such as medical diagnoses and designing structures. Every day computers
are taking over more systems tasks once done by humans. The number of computer chip designers, for
example, has stagnated due to powerful software programs that replace the work
once done by logic designers and draftsmen.

The
legal profession is already feeling the effects. There
are some aspects of legal work that will always need the personal touch and top
lawyers will always make the big bucks, but today many young lawyers are
struggling to pay back their student loans.

It cost $2.2 million for a platoon of
lawyers and legal assistants to examine six million documents in a 1978 Justice
Department antitrust lawsuit against CBS. In a recent case, Blackstone
Discovery of Palo Alto, Calif., an e-discovery and litigation support
firm, helped analyze 1.5 million documents for less than $100,000. [see article
on this in the NY Times]

Those contemplating becoming lawyers
will want to pick a concentration where they can uniquely excel or one which will
expect reduced competition from a computer.
A good specialty to pick is one that is always changing and makes no
logical sense – like international tax -- no human or computer will ever be
able to figure that one out. But no one should feel overly secure. Systems
thinking will attack any area of perceived inefficiency with automation and
likely deliver an automated solution over time.

Education and parenting should aim to
provide the conventional skills (math, problem solving, and test taking skills)
while also encouraging creative, out-of-the-box type thinking. Computers are no
match for the average fourth-grader when it comes to creativity.

Instead of making a resolution to learn
how to code in 2013, you might make a resolution to learn how to draw. After a
few months of lessons you might begin to observe the world differently seeing
details, light and shadows, shapes, proportions, perspective and negative space.

Instead of encouraging your child to
major in engineering, you might encourage her to study philosophy, ask smart unsettling questions and practice making
unusual and unexpected mental associations.

Albert Einstein said; “I have no special gift. I am only
passionately curious.”

Jan 09, 2013

Prediction: Twenty years from now, by 2033, Abraham Lincoln will
have over one million children.

Starting in 2023, scientists will have mastered creating and
manufacturing sperm from DNA. This will be
a godsend for men unable to have kids and for female same-sex couples who want
children genetically related to both parents.

Some B-list stars will start successfully selling their DNA
and this will quickly start a black market for stolen DNA from movie and sports
stars. Stealing DNA will become a
capital crime but that will not stop paparazzi thieves from following around famous
people grabbing stray hairs, skin, etc. to determine DNA. This will lead to celebrities always
travelling with bags of remnant hairs gathered from barbershops to throw off
the scent of those trying to steal their DNA.
In fact, there will be four different DNA sequences on the market all
claiming to be those of Justin Bieber.

Because of the confusion around whether a purported DNA
strand actually belonged to the claimed person, few people will trust the
designer DNA on the market. But a
government FOIA request will make public the DNA of all former Presidents of
the U.S. that are no longer alive.
Millions of mothers all around the world will pay top-dollar for the sperm
derived from the DNA of Lincoln, Washington, Jefferson, Reagan, Teddy
Roosevelt, Kennedy, and (oddly) Fillmore.

Former President Lincoln, who had only one child who lived
past 18, will quickly become the most popular designer “father” in the world.
Over one million genetically related offspring will be born between 2023 and
2033 which will make him the most important contributor to the world’s gene
pool since Genghis Khan.

Dec 18, 2012

Try this offline experiment this holiday season:Walk into a Tiffany’s with a bag from JC Penney’s and see if anyone will talk
to you. Next, go to JC Penney’s with a bag from Tiffany’s and watch the
staff fawn over you.

Online personalization is an evolving and very dynamic space. The algorithms
behind personalization sift through reams of data and supply us with tailored
recommendations, advertisements and the most personally relevant and appealing
results.

Because online personalization is on the cutting edge, we sometimes forget that
we have been targeted for decades while shopping in the brick and mortar
stores. Old-school targeting faces a similar set of problems. Old-school
retail targeting is about visually sizing up customers:

Vivian, played by Julia Roberts in the movie, “Pretty Woman,” enters the
posh shop where a day earlier, dressed in her “working girl” clothes, she was
snubbed by the shop assistant. Now, wearing a beige dress, black hat and white
gloves--the very image of elegance--she is loaded with shopping bags. The shop
assistant smiles and asks if she needs help.

Vivian: I was in here yesterday, you wouldn't wait on me.Shop assistant: Oh.Vivian: You people work on commission, right?

The shopkeeper’s targeting mistake was fictional. But every day, millions of
dollars hang on sellers properly sizing up their prospects.

Never in my life have I been referred to the women’s department when entering a
clothing store. The employees quickly surmise that I’m not looking for a dress.
They might be wrong. I could like wearing dresses, or, I may be buying a gift
for my wife, mother, or daughter. But they play the odds and refer me to the
men’s section. Additionally, because I’ll never be confused with a fashionista,
they are likely to recommend a new pair of khakis rather than the luxury
cashmere hoodie made from the soft wool of Mongolian goats.

Online personalization is similar. When you visit that same clothing
retailer’s online site, the algorithms attempt to determine something about you
and customize the content. It’s all about probabilities – the better the data
and the better the algorithm, the better the chance they will hit the mark and
show you something you like.

Of course, just as I can cloak my identity online using a cookie blocker, I
could also cloak my identity offline. If I do not want a store clerk to
know I am a man, I could wear a large parka and mask (though they might call
security to escort me out). If I cloak my identity online, I’ll get a less
interesting experience or just be ignored.

Old school targeting happens everywhere. I know a single woman who wears a
wedding ring when she travels because she gets better service from the airline
and the hotel. Sadly, society still discriminates based on appearance. In
old-school targeting, we sometimes receive wonderfully customized service, but
are also vulnerable to unpleasant experiences due to our looks, what we wear,
our gender, or the color of our skin.

Humans naturally react to others based on many factors – some legitimate and
some not. Store clerks need a filter to triage purchase intent because they
can’t spend equal time with everyone who walks into the store. They need
to allocate time to people they believe are going to buy, so they develop
heuristics, based on their own biases, to help them interact with customers. If
you walk into Tiffany’s with a JC Penney’s bag, you might be a billionaire, but
my guess is that the store clerk isn’t going to take the time to find out (unless
it’s a great sales clerk who notices your brand of shoes or the wristwatch you
are wearing).

Old-school personalization is supposition based on our five senses. When
practiced well, it can be accurate. Online personalization lacks many of
the cues one gets in the offline world, and, like store clerks, there are good
and bad online systems. Good systems unify online and offline data and
work on enhancing the experience of the customer.

Computers, like humans, have the same potential to do great good or cause harm.
But unlike humans, computers can quickly digest millions of different
interactions to make decisions. For instance, BestBuy.com can query its
database to check if you are an existing customer and what you purchased in
your last visit. It would be impossible for a store clerk to remember the faces
and purchases of millions of customers.

Stores, both brick-and-mortar and online, want our business and try to seduce
us for it. Except now, in the age of “Big Data,” it’s easier for the ones
online to be masters of seduction. One hundred years ago, John Henry
beat the machine at a severely high cost. Today, he wouldn’t even stand a
chance.

Vivian tells Edward: “The stores are not nice to people — I don't like it.”This is after she was snubbed.Edward responds: “Stores are never nice to people. They're nice to credit
cards.”

Special thanks to Ken Treske, John Battelle, Caitlin MacDonald, Brad Justus, and others for their inspiration and advice on this piece.

Dec 03, 2012

Before last week, I'd never spent more than $22 for a haircut. When I got married, I went to my go-to local barber (then it was $12) and got a good cut because I didn't want to trust my hair to a newcomer.

When I'm in San Francisco (where I live) I now go to a place that is one block from my house and open on Sundays. I got there primarily for the convenience and that the cut takes approx 10 minutes. Also, the price is $5 ... and even with a 60% tip, the final price only sets you back $8. I get more joy bragging about the bargain than from the haircut itself.

This week I was in New York, had an hour, and needed to get a haircut. I chose a place for convience (it was directly across the street from where I was staying) but it wasn't a place I typically would go to. They gave me a robe when I walked in. And they had a different person give a shampoo both before and after the cut. The total time was 45 minutes (was expecting it to be a lot longer) -- much longer than my normal 10 minutes in-and-out. And the price was $106 ($86 with a $20 tip) which is almost 5 times the price I have ever paid for a haircut.

Now objectively, the more expensive haircut is probably better. But because I paid so much for the hair cut (they call it a "salon"), I actually feel better. Which leads me to a theory:

The more you pay for your haircut, the better you think you look.

After doing an informal poll, there seems to be a direct correlation with how much you pay and how good you think you look (now how good you actually look). This seems to be the reason people pay so much for things. And it seems to be a good investment if it makes you more confident and happier.

For me, I enjoyed the experience of going to a higher-end "salon" but next time, I'm going back to my $5 regular.